IAS - 36 Impairment of Assets
International Accounting Standard No. 36 (IAS 36) Impairment of Assets
Objective 1. The objective of this Standard is to establish procedures that an entity applies to ensure that their assets are accounted for an amount not greater than its recoverable amount. An asset is carried above its recoverable amount if its carrying amount exceeds the amount that you can retrieve it through their use or sale. If this were the case, the asset is presented as impaired and the Standard requires an entity to recognize an impairment loss in value of that asset. In the Standard also specifies when an entity reverse the impairment loss in value, and the information disclosed. Scope 2. This Standard applies to accounting for impairment of value of all assets, other than: (a) inventories (see IAS 2 Inventories); (b) assets arising from construction contracts (see IAS 11 Construction Contracts); (c) deferred tax assets (see IAS 12 Income Taxes); (d) pay the proceeds to employees (see IAS 19 Employee Benefits); (e) financial assets that are included in the scope of IAS 39 Financial Instruments: Recognition and Measurement; (f) Investment property is valued according to its fair value (see IAS 40 Investment Property); (g) biological assets related to agricultural activity, which are valued according to its fair value less selling costs (see IAS 41 Agriculture); (h) deferred acquisition costs and intangible assets arising from the contractual rights of an insurer in insurance contracts that are within the scope of IFRS 4 Insurance Contracts and (i) non-current assets (or alienable and disposable groups) classified as held for sale under IFRS 5 Non-current assets held for sale and discontinued operations. 3. This Standard does not apply to inventories, assets arising from construction contracts, the deferred tax assets, assets arising from the remuneration of employees or assets classified as held for sale (or alienable in a group of items that remained classified as for sale) because existing Standards applicable to these assets contain specific
requirements for recognizing and valuing such assets. 4. This Standard is applicable to financial assets classified as: (a) subsidiaries, as defined in IAS 27 Consolidated and Separate Financial Statements; (b) partners, as defined in IAS 28 Investments in associates and (c) joint ventures, as defined in IAS 31 Investments in joint ventures. For the deterioration of the value of other financial assets, see IAS 39. 5. This Standard does not apply to financial assets that are included in the scope of IAS 39, investment property being valued according to its fair value in accordance with IAS 40, assets or related biological activity farm being valued according to its fair value less costs to sell, in accordance with IAS 41. However, this Standard applies to assets that are counted according to their revalued value (i.e. fair value) under other standards, such as the revaluation model in IAS 16 Property. Identifying whether a revalued asset may be impaired depends on the criteria used to determine fair value: (a) If the fair value of assets is market value, the only difference between the fair value of the asset and its fair value less selling costs are incremental costs directly arising from the sale or disposal by other track of the asset: (i) If the costs of sale or disposal by other means are negligible, the recoverable amount of the revalued asset is necessarily close to or greater than, its appreciated value (i.e. fair value). In this case, after applying the criteria of the revaluation is unlikely that the revalued asset is impaired, and therefore it is not necessary to estimate the recoverable amount. (ii) If the costs of sale or other disposition by no means insignificant, the fair value less costs to sell of the revalued asset is necessarily less than its fair value. Accordingly, it will recognize the deterioration of the value of the revalued asset if its value in use is less than its revalued value (i.e. fair value). In this case, after applying the criteria of the revaluation, an entity applies this Standard to determine if the asset has suffered impairment or not the value of its value. (b) If the fair value of assets is determined by a criterion other than their market value, its appreciated value (i.e. fair value) may be higher or lower than its recoverable amount. Therefore, after applying the criteria of the revaluation, an entity applies this Standard to determine if the asset has been or not a deterioration of its value. Definitions
6. The following terms are used in this Standard with the meanings specified below: An active market is a market where there are all the following conditions: (a) the items traded in the market are homogeneous; (b) you can always find buyers or sellers for a particular good or service and (c) prices are available to the public. Date of agreement in a business combination is the date on which substantial agreement is reached between the parties involved in the combination and in the case of publicly listed entities; it is announced to the public. In the case of a hostile acquisition, the first time you get a substantial agreement between the parties involved in the combination, is that they have accepted the offer of the acquiring a number of owners of the acquiree that is sufficient to gain control over it. Amount in books is the amount at which an asset is recognized, net of accumulated depreciation and impairment losses accumulated value. A cash-generating unit is the smallest identifiable asset able to generate inputs that are effective, largely independent of cash flows from other assets or groups of assets. Assets of the entity are assets other than goodwill that contribute to the achievement of future cash flows in the cash-generating unit that is being considered as in others. Costs of sale or disposal by other means are incremental costs directly attributable to the sale or other disposition by way of an asset or cash-generating unit, excluding finance costs and income taxes. Depreciable amount of an asset is its cost, or to replace that amount in the financial statements, less its residual value. Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. Fair value less costs to sell is the amount that can be obtained from the sale of an asset or cash-generating unit in a transaction at arm's length, between stakeholders and duly informed, less costs of disposal or disposition in another way.
Impairment loss in value is the amount that exceeds the amount of an asset or cash-generating unit to its recoverable amount. Recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and value in use. Useful life is: (a) the period during which the assets are expected to be used by the entity or (b) the number of production or similar units that are expected of it by the entity. Value in use is the present value of future cash flows estimated to be expected from an asset or cash-generating unit. Identifying an asset that could be damaged 7. In paragraphs 8 to 17 specifies when to determine the recoverable amount. They use the term "active", but it applies to an individual asset or a cash-generating unit. The rest of this Standard is structured as follows: (a) Paragraphs 18 to 57 set the rules for the estimation of recoverable amount. Under these rules, the term "asset", but it applies to an individual asset or a cash-generating unit. (b) Paragraphs 58 to 108 set the rules for the recognition and measurement of impairment losses in value. The recognition and valuation of losses in the value of individual assets, other than goodwill is discussed in paragraphs 58 to 64. Paragraphs 65 to 108 deal with the recognition and valuation of losses in the value of cash generating units and goodwill. (c) Paragraphs 109 to 116 set the rules for the reversal of an impairment loss in value of an asset or a cash-generating unit recognized in previous years. Again, it is used in these paragraphs the term "active", but it applies to an individual asset or a cashgenerating unit. Additional requirements for an individual asset are set out in paragraphs 117 to 121, for a cash-generating unit in paragraphs 122 and 123, and for goodwill in paragraphs 124 and 125. (d) In paragraphs 126 to 133 specifies the information to reveal about the value of losses and reversals of such losses for assets and cash generating units. Paragraphs 134 to 137 contain the requirements to disclose additional information to the cash-generating units of which have been circulated to goodwill or intangible assets with indefinite useful lives, in order to check their deterioration in value. 8. Deteriorate the value of an asset when its carrying amount exceeds its recoverable amount. In paragraphs 12 to 14 are some indicators to see if there is an impairment loss in value of an asset. If any of these indicators, the entity is obliged to make a formal
estimate of recoverable amount. Except as described in paragraph 10, this Standard does not require the entity to make a formal estimate of recoverable amount if you do not submit any evidence of an impairment loss of value. 9. An entity shall assess at each balance sheet date whether there is any sign of deterioration in value of an asset. If such indication exists, the entity shall estimate the recoverable amount of the asset. 10. Regardless of the existence of any evidence of deterioration in value, the entity shall also: (a) Assess annually the impairment of the value of each intangible asset with an indefinite useful life, as well as intangible assets not yet available for use by comparing the amount of books to its recoverable amount. This verification of the deterioration in value can be made at any time during the year, provided that takes place on the same date each year. The verification of the deterioration of the value of intangible assets may be in various different dates. However, if an intangible asset was initially recognized during the current financial year, be verified at the deterioration of its value before the end of it. (b) Assess annually the impairment of the value of goodwill acquired in a business combination in accordance with paragraphs 80 to 99. 11. The ability of an intangible asset to generate future economic benefits sufficient to recover the amount of books will be subject generally to greater uncertainty before the asset is available for use later. Accordingly, this Standard requires an entity to verify at least annually, the deterioration of the value of the carrying amount of an intangible asset not yet available for use. 12. In assessing whether there is some indication that the asset may have seen its value impaired, the entity should consider at least the following circumstances: External sources of information (a) During the year the asset's market value has declined significantly more than would be expected as a result of the passage of time or normal use. (b) During the year have taken place or will take place in the near future, significant changes with an adverse effect on the institution, concerning the legal environment, economic, technological or market in which it operates or in the market to which the asset is used. (c) During the year, market interest rates or other market rates of return on investments, and those increases are likely to affect the discount rate used to calculate the use value of the asset, so to decrease the amount recoverable
significantly. (d) The amount of net assets of the entity is greater than its market capitalization. Internal sources of information (e) There is evidence of obsolescence or physical damage of an asset. (f) significant changes with an adverse effect on the body, which take place during the year or be expected to occur in the near future, in the form or how it is used or expected to use the asset. These changes include the fact that the asset is idle, plans to restructure or interrupt the activity to which the asset belongs, plans to transfer or otherwise disposal of the asset before the due date, and as the review of the finite life of an asset previously considered indefinitely. (g) There is evidence from internal reporting that indicates that the economic performance of the asset is, or will be, worse than expected. Dividends from subsidiaries, jointly-controlled entities or associated (h) for an investment in a subsidiary, jointly controlled entity or associate, the investor recognizes a dividend from the investment and there is evidence that: (i) the amount of investment in the separate financial statements exceeds the amount of books in the consolidated financial statements of net assets of the entity that has been invested, including the goodwill associated with, or (ii) the dividend exceeds the overall total of the subsidiary, jointly controlled entity or associate in the period in which it has been decided. 13. The list in paragraph 12 is not exhaustive. An entity may identify other indications for which the asset value may be impaired, which also requires it to determine the recoverable amount of assets or in the case of goodwill, to check the deterioration in value in accordance with paragraphs 80 to 99. 14. Evidence obtained through internal reports, which indicate a deterioration in the value of assets, including the existence of: (a) cash flows for acquiring the asset, or subsequent cash needs to operate or maintain it, which is significantly higher than originally budgeted; (b) actual net cash flows, or results derived from the exploitation of assets, which are significantly worse than budgeted;
(c) a significant decrease in net cash flows or operating profit budget, or a significant increase in losses from the originally budgeted asset, or (d) operating losses or negative net cash flows for the asset, when current period figures are additional to those budgeted for the future. 15. As indicated in paragraph 10, this Standard requires checking at least annually, the deterioration of the value of an intangible asset with an indefinite useful life or not yet available for use and goodwill. Regardless of when they apply the requirements of paragraph 10, the concept of materiality is applied to identify whether it is necessary to estimate the recoverable amount of an asset. For example, if previous calculations show that the recoverable amount of an asset is significantly higher than their book value, the entity need not re-estimate the recoverable amount, provided that no event has occurred that would have eliminated this difference. In a similar way, preliminary analysis may show that the recoverable amount of an asset is not sensitive to one or more of the indications listed in paragraph 12. 16. As an illustration of what is stated in paragraph 15, if market interest rates or other market rates of return on investments had increased over the period, the entity shall not be obliged to make a formal estimate of recoverable amount of assets where: (a) Where it is probable that the discount rate used to calculate the use value of the assets will be affected by the increase in these types of market. For example, increases in interest rates in the short term may not have a significant effect on the discount rate applied to an asset to which it still remains a long life. (b) Where it appears likely that the discount rate used to calculate the use value of the asset will be affected by the increase in these market rates but previous sensitivity analysis on the recoverable amount shows that: (i) is unlikely to be producing a significant decrease in the recoverable amount, it is likely that the future cash flows are increased (for example, in some cases, the entity would be able to demonstrate that it can adjust its revenue to offset any increase in market rates), or (ii) It is unlikely that the decrease in the recoverable amount is an impairment of value that is significant. 17. If there is some indication that the asset may have damaged its value, this may indicate that the remaining useful life, the depreciation method used or the residual value of assets, need to be reviewed and adjusted in accordance with the rules applicable in this active, even if ultimately not recognize any impairment in value for the asset in question.
Assessment of recoverable amount 18. This Standard defines recoverable amount of an asset or a cash-generating unit as the higher of its fair value less costs to sell and value in use. In paragraphs 19 to 57 set out the requirements for determining the recoverable amount. They use the term "active", but it applies to an individual asset or a cash-generating unit. 19. It is not always necessary to calculate the fair value of the asset less costs to sell and its value in use. If any of these amounts exceeds the asset's carrying amount, it would not have suffered deterioration in its value, and therefore would not be necessary to calculate the other value. 20. It is possible to calculate the fair value of the asset less costs to sell, even if he is not traded on an active market. However, sometimes it is not possible to determine the fair value of the asset less costs to sell, for lack of basis for a reliable estimate of the amount that could be obtained by selling assets in a transaction in terms of independence between stakeholders and adequately informed. In this case, the entity may use the value of the asset for use as its recoverable amount. 21. If there is reason to believe that the use value of an asset significantly exceeds its fair value less costs to sell, will be considered the latter as its recoverable amount. This is often the case of an asset that remains to be disposed of or dispose of it in another way. This is because the use value of an asset that remains to be disposed of or dispose of it otherwise consist primarily of net proceeds of sale or disposal by other means, since future cash flows, derived from its continued use until the sale or disposal by other means, likely to be negligible for the calculation. 22. The recoverable amount is calculated for an individual asset, unless the asset does not generate cash entries as they are, largely independent of those from other assets or groups of assets. If this were the case, the recoverable amount is determined for the cash-generating unit to which the asset (see paragraphs 65 to 103), unless: (a) the fair value of the asset less costs to sell is greater than its book value, or (b) considers that the use of the asset value is close to its fair value less costs to sell, and this amount can be determined. 23. In some cases, for determining the fair value of the asset less costs to sell or value in use, estimates, averages and other simplifications in the calculation can provide a reasonable approximation to the numbers that would result from more detailed calculations as illustrated in this Standard. Assessment of the recoverable amount of an intangible asset with an indefinite
useful life 24. Paragraph 10 requires that you check the annual value of an impairment of intangible assets with indefinite useful lives, by comparing the amount of books to its recoverable amount, irrespective of the existence of any evidence of deterioration in value. However, recent calculations could be used more detailed recoverable amount made in the preceding year to check the deterioration of the value of that asset in the current period, provided they meet the following requirements: (a) in the case of intangible assets that do not generate cash entries that are largely independent of those flows from other assets or groups of assets and thus verify its deterioration in value as part of the unit generating cash to which he belongs, that the assets and liabilities that comprise this unit have not changed significantly since the most recent calculation of the amount recoverable; (b) the calculation of the most recent recoverable amount would result in an amount that exceeds by a significant margin, the amount of the asset, and (c) that, based on an analysis of the events and circumstances that have occurred and circumstances that have changed since that was the most recent calculation of the amount recoverable, the likelihood that the recoverable amount is less than the current book is remote. Fair value less costs to sell 25. The best evidence of fair value of the asset less costs to sell is the existence of a price, within formal sales in a transaction at arm's length, adjusted for incremental costs directly attributable to the disposition or disposal of assets by other means. 26. Absent a formal sales, but the assets are traded in an active market, fair value of the asset less costs to sell would be the market price of the asset less the costs of sale or disposal by other means. The appropriate market price is usually the current price buyer. If there is no buyer's current price, the price of the most recent transaction may provide the basis for estimating the fair value of the asset less costs to sell, if they have not produced significant changes in economic circumstances between the date of the transaction and the date on which the estimate is made. 27. If there is no firm agreement to sell or an active market, fair value less selling costs will be calculated from the best information available to reflect the amount the entity could obtain, at the balance sheet date, in a transaction at arm's length between the parties involved and informed, after deducting the costs of sale or disposal by other means. To determine this amount, the agency will consider the outcome of recent transactions in similar assets in the same industry. The fair value of the asset less costs to sell does not
reflect a forced sale, unless management is compelled to sell immediately. 28. The cost of disposal by sale or otherwise, other than those that have already been recognized as liabilities, are deducted in calculating the fair value less costs to sell. Examples of these costs are the costs of legal, tax stamps and other similar transaction, the costs of dismantling or moving assets, as well as other incremental costs for the assets left in for sale. However, severance payments (as defined in IAS 19) and other costs associated with downsizing or reorganization of a business involving the sale or other disposition by way of an asset, are not directly related and incremental costs attributable to the sale or disposal by other means. 29. Sometimes, the sale or other disposition by way of an asset may require the buyer to assume a liability and can only have a single fair value less costs to sell the combination of the assets and liabilities. In paragraph 78 explains how to deal with such cases. Use value 30. The following elements should be reflected in calculating the use value of an asset: (a) an estimate of future cash flows the entity expects to obtain the asset; (b) expectations about possible variations in the amount or timing of future cash flows; (c) the time value of money, represented by the market interest rate without risk; (d) the price by the presence of uncertainty inherent in the asset, and (e) other factors such as illiquidity that market participants would reflect in pricing the future cash flows the entity expects to derive the asset. 31. The estimate of use value of an asset involves the following steps: (a) estimate future inflows and outflows of cash arising from the continued use of the asset and its sale or disposal by other means final, and (b) apply the appropriate discount rate to these future cash flows. 32. The elements identified in paragraphs (b), (d) and (e) of paragraph 30 may be reflected as adjustments to future cash flows or as adjustments to the discount rate. Whatever the approach taken by the institution to reflect expectations about possible variations in the amount or timing of future cash flows, the result will reflect the present value of expected future cash flows, i.e. the weighted average all possible outcomes. Appendix A provides
additional guidance on the use of techniques for calculating the present value in determining the use value of an asset. Basis for estimating future cash flows 33. In determining the use value of the entity: (a) base projections of cash flows and based on reasonable assumptions, which represent the best estimates of management on the overall economic conditions that will be presented throughout the remaining life of the asset. Will be given greater weight to evidence outside the entity. (b) base projections of cash flows in budgets or financial forecasts latest 10 have been approved by management, but excluding any estimate of entry or exit of cash that is expected to arise from future restructurings or from improving the performance of the assets. Projections based on these budgets and forecasts shall cover a maximum period of five years unless a longer period can be justified. (c) estimate the projected cash flows after the period covered by budgets or financial forecasts latest extrapolating earlier projections based on such budgets and forecasts for subsequent years using scenarios with a growth rate constant or decreasing unless it could justify the use of an increasing rate over time. This kind of growth does not exceed the average long-term growth for the products or industries, as well as for the country or countries in which the entity operates and the market where the asset is used, unless can justify a higher growth rate. 34. The management will evaluate the reasonableness of the assumptions on which projections are based on current cash flows, examining the causes of differences between the projected cash flows and flows past. The management will ensure that the assumptions on which they based their projections of cash flows are uniform flows with the actual results achieved in the past, whenever the effects of subsequent events or circumstances that did not exist when those actual cash flows were generated, permit. 35. In general, it often does not have budgets or financial forecasts that are detailed, explicit and reliable for periods longer than five years. For this reason, estimates made by management on the future cash flows are based on budgets or the most recent forecasts for up to five years. Management may use cash flow projections based on budgets or financial projections for a period of five years, provided it is certain that they are reliable and can demonstrate their ability, based on past experience, to predict cash flows precisely in such long periods of time. 36. The projections of cash flows until the end of the useful life of assets was estimated by extrapolating the cash flow projections based on financial budgets and forecasts using a growth rate for subsequent years. This rate will be steady or declining, unless the information indicates that an increasing rate fits the pattern that follows the lifecycle of the product or industry. If appropriate, the growth rate could be zero or negative. 37. When the conditions are favorable, it is likely that competitors enter the market and restrict growth. Therefore, banks may find it difficult to overcome the historical average growth rate over the long term (e.g., twenty years), covering products, industry, country
or countries in which the entity operates, or market that the asset is used. 38. Using information from budgets or financial forecasts, an entity shall consider whether the information reflects reasonable assumptions and rationale, and if it represents the best estimate of the direction on the set of economic conditions that exist during the remaining useful life of the asset. Composition of estimated future cash flows 39. Estimates of future cash flows include: (a) projections of cash entries from the continued use of the asset, (b) projections of cash outflows and where necessary to incur to generate the cash inflows of the continued use of the asset (including, if the payments are necessary to prepare the asset for use) and can be directly attributed, or distributed as a reasonable and uniform basis to the asset and (c) the net cash flows, if any, will receive (or pay) for the sale or disposition of assets by other means, at the end of its useful life. 40. Estimates of future cash flows and the discount rate will take into account the hypothesis of uniform price increases due to inflation. Therefore, if the discount rate include the effect of price increases due to inflation, future cash flows are estimated in nominal terms. If the discount rate exclude the effect of price increases due to inflation, future cash flows are estimated in real terms (but include future increases or decreases in the specific price). 41. Projections of cash outflows include those related to the daily maintenance of assets, as well as future overheads that can be attributed directly, or distributed on a reasonable and uniform basis, the use of the asset. 42. When the amount of the asset does not yet include all the cash outflows to be made before it is ready for use or sale, the estimate of future payments will also include an estimate of any cash-out in which is expected to incur before the asset is ready for use or sale. This is the case, for example, a building under construction or development of a project not yet completed. 43. To avoid duplication, the estimated future cash flows do not include: (a) Entries cash from assets that generate cash entries that are largely independent of the inputs from the assets being reviewed (e.g., financial assets such as receivables items) and (b) Payments related to obligations that have already been recognized as liabilities (for example, payables, pensions or provisions). 44. The future cash flows are estimated for the asset, given its current state. These estimates do not include future payments or receipts that may be caused by:
(a) a future restructuring to which the entity has not yet committed, or (b) to increase future costs to replace an asset or part thereof, or for maintenance of these items. 45. Since the future cash flows are estimated for the asset in its present use value will not reflect: (a) future cash outflows or related cost savings (e.g. staff reductions), or other benefits that are expected to arise from a future restructuring to which the entity has not been committed so far, or (b) future costs to enhance or replace the active part of it or to keeping neither these items, nor the future benefits that are related to those future costs. 46. A restructuring program is a planned and controlled by management, the effect of which is a significant change in the activity carried out by the entity or the way it is managed. In IAS 37 Provisions, contingent liabilities and contingent assets are specified when the entity is engaged in a restructuring. 47. Where an entity is engaged in a restructuring, it is likely that some of its assets are affected by development. Once the entity is involved in this restructuring process: (a) to determine value in use, their estimates of future inflows and outflows of cash flows reflect the cost savings and other benefits expected from the restructuring (based on budgets and financial forecasts approved by the most recent address ) and (b) its estimates of future cash outflows for the restructuring itself, are included in the provision for restructuring, as set out in IAS 37. In Example 5 illustrates the effect of restructuring on future calculations of the value in use. 48. Until the entity conducting the cash outflows required to improve or enhance the performance of assets, estimates of future cash flows do not include estimates of cash entries are expected from the resulting increase in economic benefits associated with the cash outflow (see Illustrative Example 6). 49. Estimates of future cash flows include future cash outflows necessary to maintain the level of economic benefits arising from the anticipated asset in its current state. When a cash-generating unit is composed of assets with different estimated useful lives, all of them essential to the operation of the unit, the replacement of assets with shorter useful lives are considered as part of the daily maintenance of the unit, to estimate future cash flows associated with it. In like manner, when an asset is considered individually composed of components with different estimated useful lives, the replacement of components with shorter lives is considered part of daily maintenance of the asset when estimating the future cash flows it generate. 50. Estimates of future cash flows do not include:
(a) entries or cash outflows from financing activities, nor (b) the receipt or payment of tax on profits. 51. The estimated future cash flows reflect assumptions that are consistent with the manner of determining the discount rate. Otherwise, the effect produced by some of the assumptions would double or ignore. Since the time value of money is already considered by deducting the estimated future cash flows, these cash flows exclude cash inflows and outflows from financing activities. In a similar way, as the discount rate is determined before taxes, cash flows were also estimated before income taxes. 52. The estimate of net cash flows to receive (or pay) for the sale or other disposition by way of an asset at the end of its useful life, the amount that the entity expects to obtain from the sale of the item in a transaction at arm's length between the parties involved and informed, after deducting the estimated costs of the sale or disposal by other means. 53. The estimate of net cash flows to receive (or pay) for the sale or other disposition by way of an asset at the end of its useful life is determined by similar to the fair value of the asset less costs to sell, except in the estimation of these net cash flows: (a) the entity has used prices at the date of the estimate for similar assets that have reached the end of its useful life and have been operating under conditions similar to those in which the assets will be used. (b) the entity has adjusted these prices for the effect of increases due to inflation, and increases or decreases in specific prices. However, if both the estimated future cash flows from continued use of assets, as the discount rate exclude the effect of general inflation, the entity also excludes the effect of estimated net flows of cash from the sale or disposition of assets by other means. Future cash flows in foreign currency 54. The future cash flows are estimated in the currency in which they will be generated and updated using the appropriate discount rate for that currency. The body will convert the present value using the spot exchange rate at the date of calculating the value in use. Discount rate 55. The type or types of discount rates used are pre-tax, reflecting current market assessments for: (a) the time value of money, and (b) the specific risks of the asset for which estimates of future cash flows have not been adjusted. 56. A type that reflects current assessments of the time value of money and the risks specific to the asset, is the return that investors require, if you choose an investment that generates cash flow amounts, timing and risk profile equivalent to the that the entity expects to obtain the asset. This discount rate is estimated from the rate implicit in
current market transactions for similar assets, or as the weighted average cost of capital of a listed entity that has a single asset (or a portfolio of assets) similar to that being considered in terms of service potential and risk borne. However, the discount rate used to determine the usefulness of an asset does not reflect risks for which have already been adjusted estimates of future cash flows. Otherwise, the effect of some assumptions will be taken into account twice. 57. If the rate that corresponds to a specific asset is not available directly from the market, the entity will use substitutes to estimate the discount rate. In Appendix A includes additional guidance on estimating the discount rate in these circumstances. Recognition and measurement of impairment loss in value 58. In paragraphs 59 to 64 set out the requirements for the recognition and valuation of losses for impairment of assets other than individual goodwill. The recognition and valuation of losses in the value of cash generating units and goodwill are discussed in paragraphs 65 to 108. 59. The carrying amount of an asset is reduced until it reaches its recoverable amount if, and only if, the recoverable amount is less than the amount of books. This reduction is called impairment loss of value. 60. The value of the impairment loss is recognized immediately in income for the year, unless the asset is carried by its revalued in accordance with another Standard (e.g. in accordance with the revaluation model under IAS 16). Any impairment loss of value, revalued assets, is treated as a revaluation decrease under that other Standard. 61. An impairment loss in value associated with a non-revalued asset is recognized in results. However, an impairment loss in the value of a revalued asset shall be recognized in another overall result, to the extent that the declining value does not exceed the amount of the revaluation surplus for that asset. This impairment loss of the value of a revalued asset revaluation reduces the surpluses of these assets. 62. Where the estimated amount of an impairment loss in value is greater than the amount of the asset to which it relates, the entity shall recognize a liability if and only if, it is bound by another Standard. 63. Following the recognition of an impairment loss of value, charges for depreciation of assets will be adjusted in future periods in order to distribute the revised book value of assets, less its residual value possible, in a systematic way to over its useful life remaining. 64. If a recognized impairment loss of value, also specifies the assets and deferred tax liabilities associated with it, by comparing the book value of assets with the revised tax base in accordance with IAS 12. (See Example 3). Cash generating units and goodwill 65. In paragraphs 66 to 108 set out the requirements for identifying the cash generating units to which the assets and to determine the amount of books and recognize
impairment losses in the value corresponding to the cash-generating units and goodwill. Identifying the cash-generating unit to which a particular asset 66. If there is any indication of impairment of the value of an asset, the recoverable amount is estimated for the assets individually considered. If it was not possible to estimate the recoverable amount of the individual asset, the entity shall determine the recoverable amount of the cash-generating unit to which the asset belongs (the cash-generating unit of the asset). 67. The recoverable amount of an individual asset cannot be determined when: (a) the use value of the asset cannot be estimated as close to its fair value less costs to sell (for example, where future cash flows by the continued use of the asset cannot be determined by negligible) and (b) the asset does not generate cash entries that are largely independent of those produced by other assets. In these cases, the use value and, therefore, the amount recoverable may be determined only from the cash-generating unit of the asset. Example: A mining entity owns a private railway to support activities in a mine. The private railway could be sold only for its scrap value, and does not generate cash entries that are largely independent of the inputs that correspond to the other assets of the mine. It is not possible to estimate the recoverable amount of the private railway because its value in use cannot be determined, and probably is different from its value as scrap. Therefore, the entity will have to estimate the recoverable amount of the cash-generating unit to which the railway, i.e. mine as a whole. 68. As defined in paragraph 6, the cash-generating unit of an asset is the smallest group of assets, including assets, cash generated entries that are largely independent of the inputs from other assets or groups of assets. Identifying the cash-generating unit of an asset involves making judgments. If you cannot determine the recoverable amount of an individual asset, the entity must identify the smaller set of assets, including the same, generating cash tickets that are largely independent. Example: An entity bus services under contract to a municipality that requires a certain minimum services for each of the five separate routes covering. The assets for each of the routes, and cash flows arising from each of them can be identified separately. One of the routes operated with significant losses. Since the entity does not have the option to suspend any of the routes served by buses, the lowest level of identifiable cash entries, which are largely independent of incoming
cash from other assets or groups of assets are entries of cash generated by the five routes together. The cash-generating unit for each route is the entity as a whole. 69. Entries are entries of cash and cash equivalents other than cash, received from parties outside the entity. To identify if the entries of cash from an asset (or group of assets) are largely independent of incoming cash from other assets (or groups of assets), the entity shall consider various factors, including how management monitors operations of the entity (e.g. product lines, businesses, individual locations, districts or regional areas) or how management makes decisions to continue or sell or otherwise dispose of the assets and operations of the entity. Illustrative Example 1 gives some examples of identification of cash-generating units. 70. If there is an active market for the products produced by an asset or group of assets, or other one was identified as a cash-generating unit, even if some or all products produced are used internally. If the entries of cash generated by any asset or cash-generating unit are affected by internal transfer pricing, the entity shall use the best estimate of the direction of the price (s) future (s) which could be achieved in terms of transactions in mutual independence, estimating: (a) future cash inputs used to determine the use value of the asset or cashgenerating unit and (b) the future cash outflows used to determine the usefulness of other assets or cash-generating units affected by internal transfer pricing. 71. Although some or all of the output generated by an asset or group of assets being used by other units of the same entity (e.g., products of an intermediate stage in the production process), this asset or group of become a cash-generating unit if the entity can sell this product in an active market. This is because the asset or group of assets could generate cash tickets that would be largely independent of cash inflows of other assets or groups of assets. By using information based on budgets or financial forecasts, which are related to this cash-generating unit, or any other asset or cash-generating unit affected by internal transfer pricing, an entity adjusts this information if the domestic prices of transfer does not reflect the best estimate of the direction of future prices that could be made in transactions conducted at arm's length. 72. The cash-generating units are identified in a uniform manner from one period to another, and will consist of the same asset or types of assets, unless a change is warranted. 73. If an entity determines that an asset belongs, in this exercise to a different cashgenerating unit to which he belonged previous years, or the types of assets that form the cash-generating unit of the asset has changed, paragraph 130 required to disclose certain information on this cash-generating unit, if it had recognized an impairment loss or reversal of the value of it for the cash-generating unit. Recoverable amount and carrying amount of a cash-generating unit
74. The recoverable amount of a cash-generating unit is the higher of fair value less costs to sell the unit and its value in use. For purposes of determining the recoverable amount of the cash-generating unit, the references in paragraphs 19 to 57 to "active" shall be construed to "cash-generating unit." 75. The amount of a cash-generating unit is determined in a uniform manner with the way they calculate the recoverable amount of the same. 76. The amount of a cash-generating unit: (a) include the amount of books just for those assets that can be directly attributed, or distributed as a reasonable and uniform, the cash-generating unit and to generate future cash inputs used in determining the usefulness of the unit and (b) not include the amount of any liability recognized, unless the recoverable amount of the cash-generating unit cannot be determined without regard to such liability. This is because the fair value less costs to sell and value in use of a cash-generating unit are determined excluding cash flows related to assets that are not part of the unit and liabilities that are already have entered (see paragraphs 28 and 43). 77. Where the assets are grouped together to assess their recoverability, it is important to include in the cash-generating unit all assets that generate or are used to generate the relevant input flows of cash. Otherwise, the cash-generating unit may appear to be fully recoverable when in fact there has been an impairment loss of value. In some cases there is the fact that, although certain activities may contribute to the production of the estimated future cash flows of the cash-generating unit cannot be distributed in a fair and uniform to the unit in question. This might be the case for goodwill or the common assets of the entity as the registered office. In paragraphs 80 to 103 explains how to deal with these assets, to ascertain whether the cash-generating unit has deteriorated in value. 78. It might be necessary to consider some liabilities recognized in determining the recoverable amount of the cash-generating unit. This could happen if the sale or disposal by other means of that unit, forcing the buyer to assume a liability. In this case, the fair value less costs to sell (or the estimated cash flow from the sale or disposal by other means, the end of its useful life) of the cash-generating unit is the estimated selling price of the assets of the cash-generating unit and liabilities, together, less the costs relating to the sale or disposal by other means. To perform a proper comparison between the amount of the cash-generating unit and its recoverable amount will be deducted the amount of the liabilities when calculating the value of using the unit as the amount of books. Example: An entity operates a mine in a country where the law requires that owners rehabilitate the land when mining operations end. The cost of restoration includes the replacement of the layers of soil that had to be extracted from the mine before the operation began. Therefore, it has recognized a provision to cover replacement costs from the time that the earth was removed. The amount of the provision has been recognized as part of the cost of the mine and is being amortized over the life of it. The amount of the provision for
replacement costs amounting to $ 500(a), which corresponds to the current value of replacement costs. The agency is checking the possible deterioration of the value of the mine. The cashgenerating unit of the mine is the mine itself as a whole. The entity has received several offers to purchase the mine; with prices around $ 800. This price reflects the fact that the buyer will assume the obligation to rehabilitate the land. The costs of sale or otherwise disposal of the mine are negligible. The usefulness of the mine is about $ 1200, excluding costs of rehabilitation. The amount of the mine is $ 1,000. The fair value less costs to sell of the cash-generating unit is $ 800. This amount has been considered the impact of the costs of rehabilitation. As a result, the usefulness of the cash-generating unit is determined after considering the costs of rehabilitation, and is estimated at a value of $ 700 ($1,200 least $ 500). The amount of the cash-generating unit is $ 500, the same amount of the mine ($ 1000) minus the amount of the provision for rehabilitation costs ($ 500). Therefore, the recoverable amount of the cashgenerating unit exceeds its book value. (a) In this Standard, monetary amounts are expressed in "currency units" ($). 79. For practical reasons, the recoverable amount of a cash-generating unit is determined, at times, after taking into account the assets that are not part of the unit (e.g., accounts receivable or other financial assets) or liabilities that have been recorded (for example, payables, pensions and other provisions). In these cases, the amount of the cashgenerating unit is increased by the amount of these assets and are reduced by the amount of liabilities. Goodwill Allocation of goodwill to cash generating units 80. For the purpose of checking the deterioration in value, goodwill acquired in a business combination is allocated, from the date of acquisition, between each of the cashgenerating units or groups of cash generating units of the acquiring, which is expected to benefit from the synergies of the business combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Each unit or group of units to be distributed among the goodwill: (a) represent the lowest level within the entity to which the goodwill is monitored for internal management purposes and (b) may not be more than one operating segment determined in accordance with IFRS 8 Operating Segments. 81. Goodwill acquired in a business combination represents a payment made by the purchaser, by way of the future economic benefits arising from assets that cannot be